4 On January 1, 2017 Alliance Corporation issued five year $1,000,000, 69% hond

Question

4 On January 1, 2017 Alliance Corporation issued five year $1,000,000, 69% hond nt 95 ($950,000) representing a discount at time of sale of 550,000 Interest is paid annually on December 31. The market rate of interest is 8% (8 marks) Required a) Prepare the journal entry to record the issuance of the bond at January 1, 2017 b) Using the effective interest rate method, prepare the journal ex I entry to recognize the interest expense at December 31, 2017 c) What is the carrying value of the bond at December 31.2017 and January 1,2022 the maturity date)?

Explanation / Answer

Journal entry :

Calculate carrying value :

December 31, 2017 = Bonds payable-Discount on bonds payable

                                  = 1000000-(50000-16000)

December 31,2017 = 966000

January 1,2022 carrying value = 1000000

No Date accounts & explanation debit credit a Jan 1,2017 Cash 950000 Discount on bonds payable 50000      Bonds payable 1000000 (To record issue bonds payable) b Dec 31,2017 Interest expense (950000*8%) 76000      Discount on bonds payable 16000      Cash (1000000*6%) 60000 (To record interest)

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